In a relief to the HCL Technologies, the Income Tax Appellate Tribunal (ITAT), Delhi Bench ruled that mere preferring a claim unacceptable to the Revenue does not lead to levy of penalty.
The assessee, HCL Technologies had several export-oriented units which were also registered with STPI authority and in respect of such units, the assessee has been claiming deduction under section 10A of the Income Tax Act, 1961. For the assessment year 2005-06, the assessee filed the return of income declaring an income and subsequently revised the same o declaring a total income. In the original return of income, the assessee had shown business income and claimed deduction under section 10A of the Act considering 13 mother licenses as the undertakings eligible for such deduction whereas in the revised return of income the assessee showed business income and claimed deduction under section 10A of the Act and a loss from business or profession considering 31 undertakings registered with STPI under 13 mother licenses as independent undertakings eligible for deduction under section 10A of the Act.
The draft assessment order was passed without allowing the additional claim of deduction raised by the assessee in the revised return of income under section 10A of the Act on the ground that no scrutiny was done in initial assessment years regarding the claim of extensions as a separate unit, such claim cannot be allowed in succeeding Assessment Year and extensions were not specifically and independently approved by the STPI authority.
Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act and by order and levied penalty on the addition relating to the disallowance of deduction claimed under section 10A of the Act and also the disallowance of the deduction of expenses incurred towards earning of income under the head “income from other sources” claimed in the revised return, holding that the assessee is guilty of furnishing of inaccurate particulars of income and also concealment of income.
The assessee argued that no satisfaction for the concealment/furnishing of inaccurate particulars of income in respect of additions/disallowances made in the assessment order on which penalty was levied was recorded by the Assessing Officer in the assessment order; that no penalty could be levied in respect of disallowance of deduction claimed under section 10 A of the Act; and that the levy of penalty is bad inasmuch as the claim made in the revised return of income was not accepted and was not the basis for computing the income of the assessee in the assessment order.
The two-member bench of Accountant Member, N.K. Billaiya and Judicial Member K.Narasimha Chary observed that levy of penalty, in this case, is unsustainable because mere preferring a claim which is unacceptable to the Revenue does not ipso facto lead to levy of penalty. Here, in this case, Form No. 56F duly signed by the Chartered Accountant justifies the plea of bona fide belief on the part of the assessee. It is not the allegation against the assessee that any material fact relating to the income had to be unearthed with any efforts of the Revenue. It is only on the basis of the material furnished by the assessee, the claim of the assessee for benefit under section 10A of the Act in respect of 31 units as independent, was rejected. Every disallowance does not lead to a penalty, and more particularly such disallowances in relation to the issues which are debatable, in respect of which, the substantial questions of law are admitted by the High Court, are immune from penalty proceedings. With this view of the matter, we do not find any justification to sustain the penalty and consequently, we direct the Assessing Officer to delete the same.
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